InvoCare Ltd (ASX: IVC) is a leading provider of funeral services in Australia, New Zealand, and in Singapore. It also operates private cemeteries and crematoria in Australia. Key funeral brands are White Lady Funerals, Simplicity Funerals, and Singapore Casket. InvoCare has a market capitalization of A$1.6 billion.
What are the key features of InvoCare’s first half 2021 (1H21) report?
Operating revenue increased by 13% to A$257 million. Operating EBITDA increased 31% to A$63.6 million while NPAT increased to A$44 million from a loss of $18 million for 1H20. The interim dividend for 1H21 is 9.5 cents per share fully franked compared to 5.5 cents in 1H20. This represents a 66% pay-out of operating earnings.
Invocare’s businesses saw a continued recovery in the value of its funeral case average, up 6.7% with a return to pre-COVID levels in Australia and New Zealand, continued growth in memorialization sales in the Cemeteries & Crematoria business and a strong contribution from the enlarged Pet Cremations business. Cost control has been a particular feature of 1H21 and is reflected in the improved profit metrics and a return to positive operating leverage.
InvoCare continues to benefit from a strong balance sheet and the actions taken in FY20. On 30 June 2021, InvoCare had $131 million of cash, net debt of $125 million and a strong operating cash flow result translating to a cash conversion ratio of 102%. InvoCare has recently amended its debt facility to provide the Group with balance sheet flexibility to support the business during the execution of its strategy over the next few years.
What is the outlook for InvoCare?
The emergence of the COVID Delta strain in June 2021 and the implementation of lockdowns in NSW and Victoria are expected to lead to a softening of the funeral services sector once again in the second half of 2021, but the extent and persistence of COVID lockdowns remain uncertain. On this basis, InvoCare has not provided earnings guidance for the full year 2021. Notwithstanding the short-term headwinds, InvoCare remains confident about the long-term potential of the business, with future growth supported by population and aging trends in its markets.
What is the market reaction?
The market reaction to InvoCare’s 1H21 result is positive. InvoCare’s share price is up around 8% following the announcement of the 1H21 result and is currently trading at A$12.08. InvoCare trades on a forward P/E ratio in the low-thirties and a dividend yield of around 2%. This pricing is suggesting that the market has confidence in InvoCare’s business model and strategy once the COVID lockdowns become something of the past.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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